Rising prices may be concealing disappointing volume sales in the U.S. beer industry, financial services firm Credit Suisse cautioned in a recent report.
“We think volume growth (or the lack of) will be more important in 2023,” equity research managing director Kaumil Gajrawala wrote. “Looking at velocity on a dollar and unit basis excludes the impact of price, giving us a better sense of underlying trends. This is important if future price increases are limited.”
Since 2019, the price of a case of beer has increased +12%, “largely to combat inflation,” and “unexpectedly low elasticities (thus far) make revenue growth look healthy,” he wrote. However, dollar sales growth is far outpacing velocity – the measure of sales per point of distribution.
“Dollar velocity is 14% higher than 2019 levels, while unit velocity is only 1%,” Gajrawala wrote. “The spread is also widening, from 7.5% at the start of 2022 to 12.6% through November. This may be a worrying leading indicator as the focus in 2023 shifts from revenue and price to volume and market share.”
Constellation Brands – which produces and sells popular Mexican imports Modelo, Corona and Pacifico – “looks to be in the best shape,” Gajrawala wrote. Year-to-date through November 27, Constellation’s beer category dollar sales have increased +11%, to $6.7 billion, and its case volume sales have increased +6.3% at off-premise retailers, according to market research firm IRI.
Constellation’s offerings account for 16.5% of all beer category dollars, and the company has increased its share +1.67 sharepoints, more than any other beer category this year by far.
Although Constellation’s velocities have increased compared to 2019, Gajrawala cautioned that “trends are plateauing and unit velocity is decelerating.”
“It is too early to tell if a prolonged slowing will occur, but given +6% volume expectations for [fiscal year 2024], this is something we will be watching,” he wrote.
Anheuser-Busch InBev’s (A-B) “also sees a widening spread in velocity measures,” Gajrawala wrote, adding that the portfolio’s “stable unit velocity is a sign of strength.” A-B’s dollar sales have declined -2.1% and its case volume has declined -6.6% year-to-date through November 27, IRI reported.
This year, A-B has lost nearly a full point of dollar share (-0.96), but is still the largest vendor in the category with 36.2% of dollar sales, according to IRI.
Within A-B’s portfolio, some brand families are faring better than others, including Michelob and Busch.
“Michelob and Busch not only have higher unit velocities than 2019 (+19% and +6%, respectively), but volume trends are accelerating – the only two brands in our analysis,” Gajrawala wrote. “Consumers are swapping mainstream lights for Michelob Ultra while wage growth appears to be supporting higher sub-premium consumption. We think this will be a sustainable trend into next year.”
Dollar sales of the Michelob brand family have increased +7.1%, to $3.24 billion, and case volume has increased +3.1% year-to-date through November 27, according to IRI. The brand family, which is the beer category’s third largest brand family, has gained nearly half a point of share (+0.49) and accounts for 8% of all beer category dollars.
The Busch brand family, the No. 8 brand family in beer, has increased dollar sales +4.2%, to $1.65 billion. However, its case volume sales have declined -2.3% compared to the same period last year, according to IRI. Busch has gained +0.15 share points and accounts for 4% of all beer category dollars.
By comparison, the Bud brand daily has declined in both dollar sales (-4.4%, to $5.89 billion) and case volume sales (-9.2%) year-to-date through November 27, per IRI.
Dollar velocity of both A-B and Molson Coors is about +12% higher than 2019 levels and both have recorded unit velocity increases in the +1-2% range, but “key brand family results show variations that we think put ABI in a stronger position going forward,” Gajrawala wrote.
“Coors, Keystone, and Blue Moon are all seeing unit velocities decelerate since the start of the year — a concern for 2023,” he added. “Keystone not seeing the same lift as Busch is surprising to us given the overlap in customer base.”
Portfolio-wide, Molson Coors has eked out +0.5% in dollar sales growth, but its case volumes declined -5.6%, according to IRI. Its share has remained flat at 16.9% of beer category dollars.
The Keystone brand family has recorded double-digit declines in both dollar sales (-10.2%) and case volume (-15.7%). Its share has remained somewhat flat, declining -0.1 share points to 0.87% of beer category dollars.
Case volume sales (-6.8%) of the Blue Moon brand family have more than doubled dollar sales declines (-3%). Similar to Keystone, Blue Moon’s share has also remained fairly flat (-0.03 sharepoints). Blue Moon accounts for 0.8% of beer category dollars.
Dollar sales of the Coors brand family are somewhat flat (-0.3%, to $2.39 billion), while its case volume sales have declined -5.3% compared to last year, according to IRI. Coors’ dollar share declined -0.04 sharepoints, to 5.9% of beer category dollars.
After two rounds of price increases in 2022, volume growth will become even more important to monitor in 2023, Gajrawala wrote.
“As October price increases flow through, dollar velocity levels should continue to rise. The impact to unit velocity will be more informative,” he said. “When March price increases are lapped, volumes will firmly be in focus. Beer companies that can demonstrate volume growth will be better positioned, particularly as the category looks set to return to pre-pandemic trends.”